Tick. Tick. Beware the mortgage time-bombThat ridiculously low-rate ARM seemed like such a good idea at the time. But now, payments will be coming due in a big, big way.By Jeanne Sahadi, CNNMoney.com senior writerOctober 9 2006: 1:56 PM EDT

NEW YORK (CNNMoney.com) -- Mortgage rates have been trending down, but that won't do much to benefit those who signed up for low-teaser-rate adjustable-rate mortgages in the past few years. An ARM charges an initial discounted rate for a period of time, after which it adjusts to market levels. When some types of ARMs with teaser rates of 2 percent or less reset, the rates are likely to jump to more than 6 percent - and even as high as 9 percent. That can mean a doubling in monthly payments owed for those homeowners saddled with the loans.

The jump in payments could be even bigger for some people. They could have a loan balance that's larger today than it was when they got their mortgage - a situation called negative amortization. And it's common with what are called "payment option" ARMs.

That's because the initial teaser rate is a "payment rate," not an interest rate. That means the market-rate interest on the loan starts to accrue from the get-go and monthly payments aren't enough to cover it, let alone pay down any of your principal.

There may also be a trigger ceiling, meaning when the balance reaches a certain level - say 120 percent of the original balance - the introductory terms will end and the rate will reset upward, according to Christopher Cagan, director of research at First American Real Estate Solutions, a mortgage information provider. End result: A much higher interest rate on a bigger loan than the homeowner ever intended.

2. you are so so so right. my grandmother bought a condo in 2000, with

an ARM, and for the first three years, the payments went down, to the point where the initial $600+ per month was down to just above 400. then, in 05 and 06, the payment jumped, first, to 525, then to 620. you do the math, but that's almost a 50% jump in two years.

we paid it off this May, but we didn't have that large a nut to begin with.

to those who do, good luck, because those contracts allow something like a 25% per year maximum hike in interest rate.

you couldn't be more right about how hideous those payments are going to be

for those that can renegotiate, now's the time, if it isn't already too late

I was really surprised so many people thought it was GREAT! Between this problem and the number of people who have lost their jobs, only to have to take a lower paying one just to be able to earn SOMETHING, I forsee a major problem in the # of houses that get reposessed!

I think this is going to hit our economy hard, particularly on the coasts where these types of loans are popular. I am always surprised at how many people just don't understand what they are signing up for. It's like they only look at the monthly payment amount. Some people took these loans thinking they could easily sell their property, but now that the market has cooled they are in trouble.

She's 73, she just wanted the credit card companies to stop calling. Now her monthly bill is hundreds of dollars higher. We all wish she would have talked to us before making such a bad decision. The credit card debt was unsecured---she technically coulda just told them to kiss her ass.

12. I also think they make "mistakes" (changes) to the paperwork to get people

to end up with ARMs even when they don't want it.

Long story short - I just purchased my first home a couple months ago. I was very clear from the get-go that I wanted a 30-yr fixed mortgage. All the paperwork I saw previous to closing was for a 30-yr fixed. At the closing, the paperwork was for a 5-yr ARM.

Hellooo?!

The woman I was buying the home from was leaving town in a couple days, and the mortgage company said it would take them a fricking week to fix the paperwork.

Needless to say, it all worked out in the end - I signed the paperwork so we could close and immediately re-financed at no cost to myself since the mortgage company (or the broker or the other 6 middlemen or somebody) made the mistake.

But I wonder how much of a 'mistake' it really was, and how many people this happens to...do most people really inspect their paperwork at closing anyway? I don't know.

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